Empirical Evidence on Growth and Volatility

Abstract

This paper empirically investigates the relationship between long-run economic growth and output volatility. There is an emerging theoretical literature on the topic which is inconclusive on the size and direction of the relationship. We analyze this relationship empirically for the time series experience of 21 OECD countries between the years 1961 and 2005. After applying a pooled OLS estimator and a series of robustness checks we conclude that there is strong empirical evidence for a positive relationship between output variability and economic growth.